Transocean, GlobalSantaFe break new deal ground

By Caroline Humer

NEW YORK (Reuters) - Transocean Inc. (RIG.N: Quote, Profile, Research, Stock Buzz) and GlobalSantaFe Corp. GSF.N earned a page in the innovative deals book earlier this week, carving a route around high oil sector valuations and tightening debt markets.

Transocean and GlobalSantaFe, two of the largest oil drillers, agreed on Monday to a near $18 billion deal in which their shareholders will both receive a cash payment at the time of the deal in addition to stock in the new company.

To do that, the companies combined a $15 billion leveraged recapitalization backed by a bridge loan with a stock-for-stock swap that gives no premium to shareholders -- a new deal structure that will likely turn up again, M&A experts said.

The structure can work as long as the companies have low debt levels and high cash flow, they said, so that the additional debt is not a burden to the combined company.

"I would not expect this over and over and over again, but I would expect this to happen again because it was a good idea - no question - it was a good idea," said Gerald Nowak, a partner with law firm Kirkland & Ellis in Chicago.

"There is no reason to believe that there are not other companies out there that couldn't lever themselves up to a responsible level and be able to sell that into the market," Nowak said.

And here is one reason other companies might follow. The news of the Transocean-GlobalSanteFe deal pushed shares of both companies around 5 percent higher on the day of announcement as investors, who normally might not be so thrilled with a no-premium deal, rallied around the cash payment.

"This looks to be a situation where they looked at a range of different transaction structures and this is the one that gave them, and gave their combined shareholders, the best return," said Frank Aquila, a New York-based partner in the mergers and acquisitions group of law firm Sullivan and Cromwell.